RIAA: Radio needs to pay up

Artists and music labels want radio stations to start paying royalties on the …

Radio has much in common with file-swapping: both distribute good-quality audio to users separated by great distances, and both do so without compensating the performers. Both industries also claim that they don't need to pay artists because they are offering invaluable publicity. But just because one business is an American institution and the other frequently finds itself in court doesn't mean that the recording industry is thrilled with either one. Musicians and music labels have made that abundantly clear by launching a new campaign to press for traditional radio stations to start paying performance royalties.

Radio has long paid out money to familiar names like ASCAP and BMI, but these are collection societies that represent composers and songwriters, not the music labels or the performers. Not surprisingly, the performers have often concluded that this was not an ideal arrangement and that they would prefer to be paid when their work is broadcast. When times are good, this is less of an issue, and it's easier to accept the "free promotion" argument at face value. When times are bad—and they are bad right now for the music industry—the music industry starts wondering where it might find new revenue.

The answer is radio, and articles have been running in California newspapers and trade magazines for the last several weeks about the recording industry's quest to make radio stations pay performance royalties. "The creation of music is suffering because of declining sales," the RIAA's CEO Mitch Bainwol told the LA Times this week. "We clearly have a more difficult time tolerating gaps in revenue that should be there."

Whether performance royalties "should be there" is a matter of debate, especially among the broadcasters who would be forced to pay the royalties. On May 9, David Rehr of the National Association of Broadcasters sent a letter to various senators who might get involved in the issue, telling them that the performance royalty "is not a right—this is a new tax."

"Not only would this new performance tax upend the long-standing mutually beneficial business relationship that exists today between record labels, recording artists, and broadcasters," he continues, "but it would have a serious financial impact on broadcasters that could affect their ability to serve their local markets."

Most digital broadcasters in the US do have to pay these performance royalties, which is why satellite radio currently pays 7.5 percent of its revenues for the privilege of playing music. Webcasters pay a fee as well, but terrestrial radio is exempted. Radio has been around far longer than its newer rivals and has grown into a powerful lobbying force that will attempt to block any move in Congress, where the issue will have to be decided; the current arrangement is established by law, not the market.